The Madoff Crisis--A Learning Tool

The Madoff crisis has been with us for months. What have you learned? From Vanity Fair to the New York Times to your local newspaper, the havoc that the Madoff Ponzi scheme has wrecked on individuals and organizations has been splashed before us. The giving power of individuals has been diminished or wiped out. Organizations have found their endowments eviscerated and their operations horrendously impacted. The latest rebound from this is a book by the former treasurer of the organization, Hadassah. Ms. Weinstein (her first name eludes me) claims she had an affair with Bernard Madoff. She helped steer a significant portion of Hadassah's investment portfolio in his direction. Hadassah ended up losing its investments. Ms. Weinstein apparently invested her and her husband's retirement funds with Mr. Madoff and lost it all. Apparently, Ms. Weinstein hope to recoup her loses from the sale of her book. However, she has missed the point regarding her financial involvement with Madoff. She didn't understand the concept of conflict of interest. Ms. Weinstein didn't understand that she had a fiduciary responsibility to steer her organization from investment transactions handled by a small investment firms. Likewise the Hadassah board, its finance committee, and its investment committee were negligent in allowing their feelings about an individual infect their decision making responsibilities. Hadassah was not the only nonprofit organization guilty of this. There are many who suffered. With all due respect to those small brokerage firms out there in investment land, it is exceedingly important that nonprofit organizations use mainstream investment firms...names that are easily recognizable to the community at large. Staff and board members--all have fiduciary responsibilities. All nonprofits organzations ought to create investment policies which will provide organizational leadership with guidance regarding the organizations' investment strategies. One of the most impressive ones that I have reviewed is that of Youthbuild USA. It is very articulate and carefully crafted. I call it wise, savvy and underlines the fiduciary strategy of its leadership. How does an organization create one? Go to your local United Way and ask to review theirs. Go to other established nonprofits and ask them to share their's with you. If your organization has a finance committee, begin crafting it here; or if there is an investment committee, begin the process with them. Then let the finance committee review it. This policy should be voted on by the board of directors.